The poverty premium in credit exists because people in poverty pay more to borrow money. This is because people on a low income are more likely to have a low credit score and therefore be seen as more of a risk to lend to. This means that they are charged more for taking out credit and/or can only access more expensive products such as taking out a High-Cost Short-Term loan, buying products using rent-to-own schemes, or only being able to access a subprime credit card.
Fair By Design is calling for changes to the credit market so it works for people in poverty and on low incomes. We are calling on the Financial Conduct Authority (FCA) to investigate the implications of implementing a price cap on all forms of credit. We need to ensure that everyone is able to access credit to smooth out their income. We are therefore working with Fair4All Finance on a pilot No Interest Loan Scheme (NILS).
No Interest Loan Scheme (NILS)
Fair By Design is working with Fair4All Finance on a pilot (NILS), the first of its scale across the UK, with funding from HM Treasury, devolved administrations, and Fair4All Finance. The pilot delivers no interest loans to people in vulnerable circumstances across the UK.
The loans provide a vital financial cushion for people unable to access or afford existing forms of credit, but who can afford to repay small sums, by offering a way to spread essential or emergency costs. The pilot will deliver no interest loans to people in vulnerable circumstances across the UK.
The NILS pilot aims to test the benefits to customers, society and the economy and show whether a permanent nationwide NILS can be delivered in a sustainable way.
More information can be found here.